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HK, Shanghai shrs stumble as bond selloff hits markets

Published 12/08/2010, 04:09 AM
Updated 12/08/2010, 04:12 AM
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* Hang Seng slips 1.4 pct but low turnover suggests no panic

* Energy shares underperform as oil falls for second day

* Shanghai Comp falls 1 pct; banks weigh, rail stocks rally

* US Treasury selloff hurts Asian markets

* Technical outlook for HSI weakens, "head & shoulders" eyed (Updates to close)

By Vikram S.Subhedar and Farah Master

HONG KONG/SHANGHAI, Dec 8 (Reuters) - China and Hong Kong markets retreated on Wednesday as a drop in commodity prices hit resources plays and a selloff in U.S. Treasuries hurt risky assets in Asian markets.

But declines came on relatively light volumes which according to some market players suggested investors were taking risk off the table rather than turning overly bearish on the market.

Hong Kong's benchmark Hang Seng Index fell 1.4 percent to 23,092.5, erasing all of Tuesday's gains, with energy and materials the biggest underperformers.

U.S. bond yields surged on Wednesday as the selloff in Treasuries continued for a second day and was seen adding uncertainty heading into year-end.

"That's definitely affecting other markets," said Tom Kaan, a director at Louis Capital Markets in Hong Kong.

"But looking at the volumes today I'd say its an early Christmas. There's no real reason for people to add risk at the moment," said Kaan.

A pull back in oil prices from a 26-month high above $90 per barrel arrested a five-day rally for CNOOC Ltd , which fell 2.4 percent. PetroChina Co slipped 2.7 percent.

Heavyweight mainland banks remained under pressure in Hong Kong as well as in Shanghai markets amid speculation that Beijing could raise interest rates this weekend. [ID:nTOE6B602F]

"Everyone is waiting to see whether China is actually going to raise interest rates again this year," said Tanrich Securities investment manager Jackson Wong, adding that while rate hikes were widely expected it was now a question of when.

ICBC , the world's most valuable lender, slipped 1.7 percent and was the biggest drag on the Hang Seng Index. However, the drop was on less than three-quarter of the counter's average 30-day volume. Bank of China fell 1.9 percent.

Ming Tan, head of financials research at Yuanta, said a major concern among Asian investors on Chinese banks was the possibility that deposit rates would rise faster than lending rates, hitting net interest margins.

The technical outlook for the Hang Seng was weakening, traders said, with a break below 22,800 completing a "head and shoulders" pattern on the charts which could indicate further declines ahead.

SHANGHAI DROPS, RAILWAY STOCKS RALLY

China's key stock index closed down 1 percent as speculation about a possible interest rate rise kept investors largely on the sidelines.

Reports of a government plan to support a high-speed rail network spurred a rally in railway-related stocks.

Investors awaited a flurry of economic data including inflation figures expected next week that may offer hints about the government's next monetary move.

The Shanghai Composite Index closed at 2,848.5 points, closing once again below the closely watched 250-day moving average now at 2,868 points.

"Investors are adopting a wait and see attitude," said Zhang Qi, analyst at Haitong Securities in Shanghai, adding that investors are uncertain about the impact tightening measures will have on the availability of cash in the stock market.

Analysts expect volume to pick up again by the start of next year as investors start focussing once again on corporate earnings, government stimulus measures and valuations.

Official media reported on Wednesday that the government would invest $600 billion in high-speed rail networks, spurring speculative buying in related stocks.

Railway manufacturer Jinxi Axle Co Ltd jumped to its 10 percent limit. China South Locomotive & Rolling Stock Corp Ltd rose 7 percent, and China Railway Group Ltd gained 2.3 percent. (Editing by Kazunori Takada) Pan-Asia...... Japan........ S.Korea.... S.E. Asia............ Hong Kong... Taiwan..... Australia/NZ......... India....... China......

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